Italian prime minister Mario Monti pledged new efforts to boost the economy after a disappointing bond auction yesterday underlined the threat to the country’s shaky public finances.
Investors demanded a yield of almost 7 per cent on 10-year paper at the auction of medium- and long-term bonds, down from the record highs seen last month but still unsustainable given the €450 billion that Italy needs to raise through debt issuance in 2012.
An unprecedented European Central Bank injection last week of nearly half a trillion euro of cheap funding for banks eased pressure at a short-term Italian debt auction yesterday, but longer-dated bonds still pose a challenge.
Mr Monti put a brave face on the auction result, which analysts described as “slightly positive” or “average” at best.
“Auctions held yesterday and today went rather well. This is encouraging but the financial turbulence absolutely isn’t over,” Mr Monti said during a traditional end-of-year press conference.
Italy, the euro zone’s third-largest economy, remains at the centre of the debt crisis that began in Greece two years ago and its borrowing needs could overwhelm Europe’s financial defences if it were forced to seek a bailout.
Mr Monti promised to outline a package of growth measures to EU partners next month and said the emphasis would be on liberalising the economy, boosting competition and overhauling the jobs market, though he did not give details.
The measures will follow a €33 billion package of cuts and tax increases aimed at balancing the budget by 2013 which was passed by parliament last week but which has been criticised for weighing too heavily on Italy’s already sickly growth prospects.
Mr Monti said he was aware the austerity package had “many disadvantages” but said budget discipline was needed to restore confidence in Italy’s public finances.
However, he added that European policy had to focus increasingly on growth.